The public funding of research and development is an integral function carried out by the governments of most OECD countries. The primary objective of this policy is to increase innovation potential as well as competitiveness in the respective domestic economy.

The German federal government is funding scientific and private business research by means of partner facilities (Projektträger). From an economic point of view and in the context of the reform and extension of public innovation funding, an evaluation of these efforts has recently attained a higher degree of importance.

Within the framework of an OECD-coordinated international comparison of selected aspects of national innovation promotion, the ZEW conducted an analysis of effects, strategies and cooperation patterns involved in the direct funding of R&D projects. To this end, public funded companies were surveyed.

This research project tended to accentuate the impact of external stimuli on the determinants of entrepreneurial R&D processes. Using the example of public R&D funding, the extent to which external business factors interact with the strategies and capabilities firms employ with respect to R&D activities were analysed.

The results of the study were presented at the Platform/OECD conference in Vienna at the beginning of 2005:

(a) The number of publicly funded R&D projects in the business sector in Germany increased by 142 percent from 1990 to 2000. In 2003 more than 4,000 publicly funded R&D projects are carried out in industry. The total amount of all publicly funded R&D projects in the business sector increased by +22% between 1990 and 2000.

(b) In general a complementary relationship of public R&D funds and private R&D investments exists. On average no crowding out of private R&D money is observable. However the leverage effect of funding varies depending on the funded technology.

(c) The majority of companies behave reactive and just apply for an R&D grant on basis of an external stimulus from scientific institutions or other business companies.

(d) Many companies stated that they could begin earlier with the R&D-project because of the research funding.18% of all firms contend both public funds have sped up the early stages of the affected project & shortened the time to conduct R&D.

(e)Regarding the cooperations completed for the funded R&D project, about 25% of the new initiated cooperations with science and almost half of the new entered cooperations with industry were continued after funding ends.

Further results of the analysis and comparable international studies will be presented and published by the OECD at the end of 2005.